Bank on Being Bilked

March 26, 2013

Leo Gerard

It’s hard to believe considering what happened in 2008 on Wall Street and in Washington, but banking is built on trust.

A worker hands his hard-earned dollars to a teller and trusts the money will be deposited and available for withdrawal when needed. Despite the crash on Wall Street, workers still trust bankers to safeguard deposits from robbers and reckless investments.

Granting banks a little less credulity might be wise. Just consider what happened in the past two weeks. A U.S. Senate investigation revealed that the 2010 Dodd-Frank banking reforms utterly failed in the case of the $6.2 billion “London Whale” gambling loss at JPMorgan Chase. Then a U.S. House committee passed seven measures to weaken Dodd-Frank. And there was the European Union’s demand that Cyprus expropriate money from depositors to prevent that nation’s big banks from failing. That means no depositor can trust that a government won’t dip its hands into savers’ accounts to bail too-big-to-fail banks. The trust is gone, baby.

Naturally, the working people of Cyprus went crazy. Their president had focused on protecting rich foreigners. And he decided it was fine for the government to reach into workers’ savings accounts and grab money to rescue big banks.

The Dodd-Frank Wall Street Reform and Consumer Protection Act was supposed to give taxpayers some trust that the banks would be sufficiently regulated, that too-big-to-fail wouldn’t happen again. But the London Whale drowned that fantasy.

This action is an example of right-wing Cypriot President Anastasiades’ view of government: protect the wealthy and influential and compel the workers to pay.

It didn’t go over well in Cyprus. After massive street demonstrations, the Cyprus Parliament unanimously rejected the initial plan to seize money from small depositors’ insured accounts to rescue the banks.